Indonesia

10/10/2012 - Indonesia can improve national food security by facilitating greater investment in agriculture, opening agri-food markets to greater international trade, reforming input subsidies and food aid schemes and moving away from self-sufficiency policy objectives, according to a new OECD report.

"Review of Agricultural Policies: Indonesia" says that promoting sustainable private investment in agriculture is crucial to enhancing agricultural growth, maximising the development benefits of a strong agricultural sector and achieving food security.

Indonesia’s focus on achieving food security through self-sufficiency is misplaced, according to the report, which was presented today in Jakarta by Ken Ash, director of the OECD Trade and Agriculture directorate, and Indonesian Agriculture Minister Suswono.

While poverty rates have declined in Indonesia, undernourishment was estimated at around 13% in 2007. “Diversification from rice production into high-value crops such as fruit and vegetables and cash crops has already contributed to higher incomes and improved access to food for many farm families,” Mr Ash said. “Further progress in this direction is possible.”

Import protection hinders the competitiveness of the agricultural sector, limiting agricultural productivity growth and increasing food costs for poor consumers, including the majority of farmers, who are net buyers of food staples. Greater transparency of non-tariff measures would encourage trade, allowing Indonesian consumers to access food on international markets, the OECD said.

Indonesia is the world’s 10th largest agricultural producer: the farm sector accounts for 15% of GDP and 38% of employment. The OECD report finds that Indonesian agriculture has suffered from relatively low investment levels - apart from a sharp increase in large-scale private investment in palm oil and biofuel since 2010 - given its importance to the economy. This investment shortfall could be addressed by accelerating land registration and simplifying the land tenure system; improving key infrastructure, such as irrigation and electricity; facilitating access to credit; and reducing export taxes on crude palm oil and cocoa beans.

Government support to agriculture, measured by the "OECD Producer Support Estimate", averaged 9% of farmers’ gross receipts over the 2006-10 period – lower than the average for OECD economies. The report proposes reforms that would improve the efficiency of this support, to farmers and poor consumers alike.

Indonesia’s costly fertilizer subsidies to farmers could be replaced by a voucher scheme, while the RASKIN (Rice for the Poor) scheme could be replaced by a conditional cash transfer payment programme offering poor households greater choice and less dependence on rice.

Indonesia could also:

Increase public funding on agricultural research and development (R&D), including extension and advisory services.

Improve the reliability of water supplies to farmers, including greater spending on irrigation.

Develop a long-term strategy for farm restructuring.

Diversify financing sources for rural businesses, by expanding the scope of the Credit Bureau and the Debtor Information System (DIS).

Reinforce legislation on environmental and forest protection, and assess the economic and environmental soundness of biofuel policy.